IDEAS home Printed from https://ideas.repec.org/p/nbp/nbpmis/229.html
   My bibliography  Save this paper

The impact of market structure and the business cycle on bank profitability: the role of foreign ownership. The case of Poland

Author

Listed:
  • Malgorzata Pawlowska

Abstract

The aim of this study is to examine the impact of banking-sector structure and macroeconomic changes on bank profitability in the Polish banking sector over the past fifteen years (i.e., prior to and during the global financial crisis of 2008). The model developed in this paper incorporates the Structure-Conduct-Performance (SCP) hypothesis, as well as the Relative Market Power (RMP) hypothesis created by Smirlock (1985). Furthermore, this paper also examines the overall effect of financial structure and macroeconomic conditions to determine whether financial development and business cycles affect the profit of Polish banks. Finally, t his paper tests the impact of foreign capital on the profitability of Polish banks and attempts to determine if there is a link between the context of the parent banks and the profitability of their affiliates. Empirical results based on two panel data sets describing both micro-level and the macro-level data are ambiguous, and find evidence of the RMP hypothesis, as well as the traditional SCP, in the Polish banking sector. This paper also finds that increased foreign ownership and intermediation have a positive effect on bank profitability. Furthermore, this paper finds a positive correlation between the context of parent banks and the profitability of their affiliates. Also, the profitability of commercial banks in Poland are contingent upon the business cycle.

Suggested Citation

  • Malgorzata Pawlowska, 2015. "The impact of market structure and the business cycle on bank profitability: the role of foreign ownership. The case of Poland," NBP Working Papers 229, Narodowy Bank Polski.
    • Handle: RePEc:nbp:nbpmis:229
    as

    Download full text from publisher

    File URL: https://static.nbp.pl/publikacje/materialy-i-studia/229_en.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Molyneux, Phil & Lloyd-Williams, D. M. & Thornton, John, 1994. "Competitive conditions in european banking," Journal of Banking & Finance, Elsevier, vol. 18(3), pages 445-459, May.
    2. Panzar, John C & Rosse, James N, 1987. "Testing for "Monopoly" Equilibrium," Journal of Industrial Economics, Wiley Blackwell, vol. 35(4), pages 443-456, June.
    3. Smirlock, Michael, 1985. "Evidence on the (Non) Relationship between Concentration and Profitability in Banking," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 17(1), pages 69-83, February.
    4. John Goddard & Phil Molyneux & John O. S. Wilson, 2004. "The profitability of european banks: a cross‐sectional and dynamic panel analysis," Manchester School, University of Manchester, vol. 72(3), pages 363-381, June.
    5. Malgorzata Pawlowska & Dobromil Serwa & Slawomir Zajaczkowski, 2015. "International Banking and Liquidity Risk Transmission: Evidence from Poland," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 63(3), pages 585-605, November.
    6. Demsetz, Harold, 1973. "Industry Structure, Market Rivalry, and Public Policy," Journal of Law and Economics, University of Chicago Press, vol. 16(1), pages 1-9, April.
    7. Pagano, Marco, 1993. "Financial markets and growth: An overview," European Economic Review, Elsevier, vol. 37(2-3), pages 613-622, April.
    8. Xavier Freixas & Jean-Charles Rochet, 2008. "Microeconomics of Banking, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262062704, April.
    9. Molyneux, Philip & Thornton, John, 1992. "Determinants of European bank profitability: A note," Journal of Banking & Finance, Elsevier, vol. 16(6), pages 1173-1178, December.
    10. Maudos, Joaquin & Fernandez de Guevara, Juan, 2004. "Factors explaining the interest margin in the banking sectors of the European Union," Journal of Banking & Finance, Elsevier, vol. 28(9), pages 2259-2281, September.
    11. Mirzaei, Ali & Moore, Tomoe & Liu, Guy, 2013. "Does market structure matter on banks’ profitability and stability? Emerging vs. advanced economies," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 2920-2937.
    12. Małgorzata, 2011. "Competition in the Polish banking market prior to recent crisis for the period 1997–2007 – empirical results obtained with the use of three different models," Bank i Kredyt, Narodowy Bank Polski, vol. 42(5), pages 5-40.
    13. A. P. Lerner, 1934. "The Concept of Monopoly and the Measurement of Monopoly Power," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 1(3), pages 157-175.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Michael Kourtis & Panayiotis Curtis & Michael Hanias & Eleftherios Kourtis, 2021. "A Strategic Financial Management Evaluation of Private Hospitals’ Effectiveness and Efficiency for Sustainable Financing: A Research Study," European Research Studies Journal, European Research Studies Journal, vol. 0(1), pages 1025-1054.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Malgorzata Pawlowska, 2016. "The impact of market structure and the business cycle on bank profitability: does the SCP paradigm work? A case study in Poland prior to and during the financial crisis," IFC Bulletins chapters, in: Bank for International Settlements (ed.), Combining micro and macro data for financial stability analysis, volume 41, Bank for International Settlements.
    2. Khan, Habib Hussain & Ahmad, Rubi Binti & Chan, Sok Gee, 2018. "Market structure, bank conduct and bank performance: Evidence from ASEAN," Journal of Policy Modeling, Elsevier, vol. 40(5), pages 934-958.
    3. Tan, Yong, 2017. "The impacts of competition and shadow banking on profitability: Evidence from the Chinese banking industry," The North American Journal of Economics and Finance, Elsevier, vol. 42(C), pages 89-106.
    4. Malgorzata Pawlowska, 2016. "Market structure, business cycle and bank profitability: evidence on Polish banks," Bank i Kredyt, Narodowy Bank Polski, vol. 47(4), pages 341-364.
    5. Vera-Gilces, Paul & Camino-Mogro, Segundo & Ordeñana-Rodríguez, Xavier & Cornejo-Marcos, Gino, 2020. "A look inside banking profitability: Evidence from a dollarized emerging country," The Quarterly Review of Economics and Finance, Elsevier, vol. 75(C), pages 147-166.
    6. Faluk Shair & Na Sun & Sun Shaorong & Firdos Atta & Muhammad Hussain, 2019. "Impacts of risk and competition on the profitability of banks: Empirical evidence from Pakistan," PLOS ONE, Public Library of Science, vol. 14(11), pages 1-27, November.
    7. Coccorese, Paolo, 2009. "Market power in local banking monopolies," Journal of Banking & Finance, Elsevier, vol. 33(7), pages 1196-1210, July.
    8. M. Ajide, Folorunsho & A. Aderemi, Adetunji, 2015. "Market Power of Nigerian Deposit Money Market: Evidence from Bresnahan-Lau’s Approach," Working Papers 14, Department of Economics, University of Ilorin.
    9. Barbara Casu & Claudia Girardone & Philip Molyneux, 2012. "Is There a Conflict between Competition and Financial Stability?," Chapters, in: James R. Barth & Chen Lin & Clas Wihlborg (ed.), Research Handbook on International Banking and Governance, chapter 3, Edward Elgar Publishing.
    10. Yong Tan, 2020. "Competition and Profitability in the Chinese Banking Industry: New Evidence from Different Ownership Types," Journal of Industry, Competition and Trade, Springer, vol. 20(3), pages 503-526, September.
    11. Naceur, Sami Ben & Omran, Mohammed, 2011. "The effects of bank regulations, competition, and financial reforms on banks' performance," Emerging Markets Review, Elsevier, vol. 12(1), pages 1-20, March.
    12. Tan, Yong, 2016. "The impacts of risk and competition on bank profitability in China," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 40(C), pages 85-110.
    13. Malgorzata Pawlowska, 2012. "Competition, concentration and foreign capital in the Polish banking sector (prior and during the financial crisis)," NBP Working Papers 130, Narodowy Bank Polski.
    14. Goddard, John & Molyneux, Philip & Wilson, John O.S. & Tavakoli, Manouche, 2007. "European banking: An overview," Journal of Banking & Finance, Elsevier, vol. 31(7), pages 1911-1935, July.
    15. Gangopadhyay, Partha & Jain, Siddharth & Bakry, Walid, 2022. "In search of a rational foundation for the massive IT boom in the Australian banking industry: Can the IT boom really drive relationship banking?," International Review of Financial Analysis, Elsevier, vol. 82(C).
    16. Carbó, Santiago & Humphrey, David & Maudos, Joaquín & Molyneux, Philip, 2009. "Cross-country comparisons of competition and pricing power in European banking," Journal of International Money and Finance, Elsevier, vol. 28(1), pages 115-134, February.
    17. Molyneux, Philip & Reghezza, Alessio & Xie, Ru, 2019. "Bank margins and profits in a world of negative rates," Journal of Banking & Finance, Elsevier, vol. 107(C), pages 1-1.
    18. Sinha, Pankaj & Sharma, Sakshi & Ghosh, Sayan, 2015. "An empirical analysis of competition in the Indian Banking Sector in dynamic panel framework," MPRA Paper 68556, University Library of Munich, Germany, revised 28 Dec 2015.
    19. Ayaydin, Hasan & Karaaslan, İbrahim, 2014. "Stock Market Development, Bank Concentration, Ownership Structure, and Bank Performance: Evidence from Turkey," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 1(1), pages 49-67.
    20. Tai-Hsin Huang & Nan-Hung Liu, 2014. "Bank competition in transition countries: Are those markets really in equilibrium?," Empirical Economics, Springer, vol. 47(4), pages 1283-1316, December.

    More about this item

    Keywords

    bank profitability; foreign–owned banks; concentration; market power; market structure; Lerner index; Polish banks; business cycle.;
    All these keywords.

    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G2 - Financial Economics - - Financial Institutions and Services
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbp:nbpmis:229. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Jakub Growiec (email available below). General contact details of provider: https://edirc.repec.org/data/nbpgvpl.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.